Inventory Management Practices and Its Effects on Vendor Managed Inventory Performance

Abstract

The Vendor Managed Inventory (VMI) has long been implemented by many corporations due to its various positive effects it has towards the company’s performance.At the same time, a number of success stories of VMI program have also been discussed by numerous authors.However, until now, there is no concrete conclusion on VMI has been clarified. Therefore, this study tries to shed the lights on the effects of inventory management practices, which include visibility of demand, replenishment decision, inventory ownership, inventory location, and inventory control limits on VMI performance.Quantitative methodology was chosen as the method to gather the data where those manufacturing companies being selected according to the list from the Federation of Malaysian Manufacturer (FMM).The data was gathered from 101 manufacturing companies whose manufacturing based located in Malaysia. Data analysis was conducted by employing descriptive analysis, factor analysis, reliability analysis, and a simple multiple regressions.The findings showed that visibility of demand and inventory control limits were the main predictor of service performance. Meanwhile, only inventory location contributes to cost performance of VMI. Manufacturing companies should urge their customer to share demand information and setting appropriate min–max limits of inventory levels in order to get benefits from VMI program.It was suggested for companies to consider to setup inventory storage or warehouse near to their customer’s premises especially when engaging with abroad customers.